An assignment of rights under a contract is a transfer of a right or obligation of one person to another. For example, if party A contracts with Party B to sell his shop to him for £10, party A can later assign the benefits of the contract - the right to be paid £10 - to party C. In this scenario, party A is the oblige/assignor, party B is an obligor, and party C is the assignee. Such an assignment may be donatives (a gift), or it may be contractually exchanged for consideration. It is important to note, however, that party C is not a third party beneficiary, because the contract itself was not made for the purpose of benefiting party C. However an Assignment only transfers the rights/benefits to a new owner. The obligations remain with the previous owner.
Can any contract be assigned?
Under common law, the freedom to assign any contractual rights prevails. An assignment will generally be permitted unless there is an express prohibition against assignment in the original contract. Where assignment is allowed, the assignor need not consult the other party to the contract as the assignment does not have effect on the obligations of that other party. It follows that some contracts simply cannot be assignment – if Bill contracts with Betty, to perform a dance show for him at a party, Betty cannot assign her rights. To do so would mean that Bill would not receive his part of the bargain – Betty dancing.
Requirements for an effective assignment
The assignment must occur in the present - a promise to assign in the future has no legal effect;
Lack of agreement prohibiting assignment – of course a contract may contain a non-assignment clause; however, this may not necessarily destroy the power of either party to make an assignment. Instead, it merely allows the other party to sue for breach of contract if such an assignment is made. Assignment of a contract containing such a clause will be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment clause specifies that "all assignments are void";
An assignment must be in writing if it assigns wages, any interest in real property, collateral for a loan or debt or chooses of action (for example, cheques) worth over £5,000.
Preventing assignment
You can prevent an assignment by including a:
Non-assignment clause in the contract (but see ‘requirements’ above);
Rescission clause (this gives the other party the power to rescind the contract if an assignment is made);
Clause creating a condition subsequent (this rescinds the contract automatically).
Can an assignment be revoked?
Assignments made for consideration are irrevocable.
Donatives assignments are generally revocable, either by the assignor giving notice to the assignee, taking performance directly from the obligor, or making a subsequent assignment of the same to another. However, a donatives assignment is not revocable where:
The obligor has already performed;
The assignee has received a physical object that signifies a right to collect, such as a Stock certificate or the passbook to a savings account;
The assignor has set forth in writing the assignment of a simple chose - a contract right embodied in any form of token;
Estoppels prevents the revocation of a donatives assignment (for example, where the assignee changed their position in reliance on the assignment);
The assignor dies or declares himself bankrupt.
Successive assignments
Sometimes, an assignor will assign the exact same rights to multiple parties (usually for some consideration).
If the assignment is donatives, the last assignee is the true owner of the rights. However, if the assignment is for consideration, the first assignee to actually collect against the assigned contract is the true owner of the rights.
Negotiating assignment clauses
If considering assignment, consider the following and what would best suit your circumstances:
Is the consent of the other party to the agreement required?
Is a certain advance notice period required?
Can the agreement be transferred and assigned in part?
Can the agreement be transferred and assigned to any third party or only to affiliates?
Are there any third parties who may not be assigned the agreement (specific companies; persons, competitors and so on)?
Who is an affiliate? Any related company or only a company controlling, controlled by or under common control with the assignor?
If a company undergoes a reorganisation, split, spin-off, merger, change in control, will this be considered a transfer or assignment?
May a party refuse to provide its consent to the transfer or assignment of the other party? Must there be reasonable grounds?
Will the assignee be required to enter into a written undertaking stating that it will fulfil all of the obligations transferred and assigned to it?
Will the party assigning the agreement remain liable for the fulfilment of obligations under the agreement by the assignee?
May the agreement be transferred or assigned more than one time?
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Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
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Do not form part of any other advice, whether paid or free.
